NEWS

26^th April 2007 - Poland\'s central bank raises interest rates as expected

At it's April meeting, the National Bank of Poland (NBP) raised interest rates by 25 basis points to 4.25%. The move was widely anticipated by market analysts, and is largely in response to rising inflation and wage growth in the Polish economy.

With regards to the future need for more interest rate tightening, the NBP provided mixed signals.

Wage and price threats from a strong economic expansion took top billing in collegiate rhetoric, but any rate hike expectations were cooled by the council president and by snippets from the central bank's inflation projection, which proved easier on prices than its predecessor.

"The Council assessed that the high growth of domestic demand, which most probably outpaces the growth of potential GDP, will be sustained in the next quarters, which should be conducive to a gradual increase in wage and inflationary pressures," the RPP said in its statement.

The Council acknowledged that the economy is "in a phase of strong growth encompassing all sectors" and asserts that recent data suggest the strength of the expansion "should hold at least for several quarters."

Current growth rates a 'without a doubt' above potential growth rates, Council member Andrzej Slawinski chimed in, when asked about factors leading to the Wednesday decision.

Forecast growth rates have risen. The expected GDP growth ranges for 2007, 2008 and 2009 have all improved in the central bank's latest inflation projection.

Rate setters will keep their attention trained on the relation of wage growth to productivity growth, the council said in a Continuation of its policy to date.

But other factors will play a role. The Council even mentioned FX rates and globalisation processes amongst key factors to watch.

Central bank president Slawomir Skrzypek worked the afternoon press briefing to assure that the picture remained balanced.

"The statement should not be read as an announcement of further rate hikes," Skrzypek told reporters. "The statement should not be read as saying we are faced with a series of hikes."

Likewise the inflation outlook argued against the need for further tightening.

The central bank's April inflation projection shows future inflation below prior forecast and almost directly on the central bank's target range even to the end of 2008.

In its policy statement, the council only tweaked that outlook to note that inflation mid-term is more likely to run above target than below. Inflation will fall 'clearly below' the 2.5% policy goal in H2 2007, the council added.

The projection might not represent the council consensus. Council member Halina Wasilewska-Trenkner has already warned that the new projection is built on misleading assumptions, having contained only better than expected January-February data, but not the price and economic growth surge seen in March data


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